Press conference, Commonwealth Parliamentary Office, Sydney

TREASURER:

Currently the Foreign Investment Review Board has 195 active cases being investigated for unlawful purchase of residential real estate across a number of states. The values in the properties being investigated ranges from $300,000 to over $40 million. 24 of the cases are voluntary cases, that is they've come forward to self- identify as being possibly in breach of the FIRB Act. One case in Western Australia in particular involves self-disclosure of a property by a UK family and that property has a value of around $700,000. There is proving to be considerable opportunity through the investigation of multiple property ownership. In one case there is an owner who is being investigated as a foreign citizen owning 10 properties across two states, ranging in value from $300,000 to $1.4 million. Now, because we have begun the transfer of the investigative powers from the Treasury to the Australian Taxation Office, it is giving us a much broader range of opportunity to carry out the investigations. It is the case that data matching is proving to be the most viable form of investigative methodology. The Australian Taxation Office is undertaking data matching with the Department of Immigration, AUSTRAC, land titles offices at a state level, ASIC, Centrelink and a range of other entities. As a result, even with data matching with its own database, the Australian Taxation Office is finding increasingly that there is a likelihood of taxation fraud, as well as unlawful purchase of real estate by foreign entities. Now, it is timely to remind people that there is a moratorium until the 1st of December to come forward, if you believe that you may have unlawfully purchased residential property in Australia. Unless you have permission, as a foreigner, you are not allowed to buy existing residential property in Australia. The legislation which is going to further strengthen the penalties for the Federal Government in relation to this, will be out for consultation on the 6th July. It will be introduced into the House of Representatives on the 19th August. We expect it to pass through the Senate and be fully in place by the 1st December. From that time on, significant penalties will apply to any foreign citizen who has unlawfully purchased residential real estate in Australia. So the message is clear. We have put very significant additional resources into the investigations, building up to 60 people by the 1st of July, and the Australian Taxation Office is using all the resources of government to fully investigate any suggestions that come forward that a foreign person has unlawfully purchased real estate in Australia. Questions?

JOURNALIST:

Treasurer, this crackdown is happening because you are worried about the impact of this illegal buying in driving up prices, but we’re still only talking about less than 200 properties. Could that really be having an effect on the market?

TREASURER:

Well in some cases there may be multiple properties, as is one example where an individual is being investigated for owning 10 properties across two states. This is the tip of the iceberg. There’s a considerable way to go. The data matching powers of the Australian Taxation Office are formidable, and they will give us the power to look right across the system. But I say in relation to suggestions of a property bubble in Sydney or Melbourne, the response is clear - build, build, build, that’s what we want to see. More construction in housing and that is going to address any concerns that there might be exaggerated prices in parts of Australia.

JOURNALIST:

For this crackdown to really be deemed a success, will you measure it in house prices slowing significantly [inaudible]?

TREASURER:

No, it will be measured on a number of criteria. For example, if we get proper applications coming forward for the purchase of residential real estate, also for the divestment of property that has been unlawfully acquired. But ultimately, as a result of the new resources that we are putting in to both the Foreign Investment Review Board and the Australian Taxation Office, you are going to see some very real results but, most importantly, it comes down to the integrity of the system. We want to see integrity in the foreign investment system in Australia. That’s reassuring for Australian investors and it's reassuring for the general public.

QUESTION:

Is that reassuring for first home buyers?

TREASURER:

Well it should be for everyone. But I say again in relation to what is reasonably expensive entry costs for first home buyers into housing in Australia, the best response is to build more housing. We want to see state governments continue to approve new developments. We want to see local government step up to the plate and start accelerating their approval for construction jobs in residential real estate. The response is clear. The only way you are going to have a bubble that bursts in real estate is if there is excess supply and we are a long way from excess supply in the Australian market and particularly in the Sydney market.

QUESTION:

Are you worried that putting this extra level of regulation on foreigners buying properties could ultimately drive down property prices?

TREASURER:

Not at all, not at all. The entry costs into real estate in Australia are low for foreign investors compared to that of Singapore or Hong Kong and a number of other jurisdictions. And now even Victoria. The Labor Government in Victoria is imposing its own foreign investor tax. Well, that’s their call. That is their primary area of responsibility. We see this as a reasonable fee for an application to be made to the Foreign Investment Review Board. It provides us with the resources that enable us to undertake proper investigations that ensure there’s integrity in the foreign investment system.

QUESTION:

What proportion of the homes under investigation have been bought in a trustee type structure? When they have a local trustee who might have residency, who’s bought the home on behalf of a foreigner?

TREASURER:

Well, we’re not revealing the exact structures, but obviously foreign investors have been using trusts. The more sophisticated, or should I say, the bigger the property value the more sophisticated the arrangements seem to be in relation to hiding the true nationality of the individual that owns the property.

QUESTION:

But do you have any plans to crackdown on this particular structure? So, in the case of Villa del Mare the accountant said ‘we haven’t done anything wrong’, because you’ve bought the home in this sort of trust structure?

TREASURER:

Well, look, I don't want to comment on a particular case. In that case, the divestment order was issued. But under our new regime, if you provide support and advice to an individual so that they can avoid proper detection of their nationality, you too can be fined. That doesn't exist at the moment, but it will exist after the 1st of December.

QUESTION:

Mr Hockey, can you give us some idea of the distribution when you are talking about the number of cases? Are they mainly people who own mansions and expensive properties, or are they mainly properties that might actually go to first home buyers and people who are looking at properties below the median house price?

TREASURER:

Well, in the case of that single investigation of an individual, 10 properties, less than $1.4 million, down to $300,000, across two states and the two states are not New South Wales - do not include New South Wales. Therefore, you can - it depends what a first home acquisition price might be. But, I am not suggesting this is going to represent thousands and thousands of homes. But, what it is going to do is provide reassurance that people are complying with the law when they engage in the purchase of a property. It is also the case that these are existing properties, not new properties. They're existing properties so it narrows the field of, cohort of, available real estate that foreigners may be able to purchase. We welcome foreign investment in new real estate because it adds to the stock, and importantly we want to continue to encourage the construction of new housing. I say again, build, build, build. We want Australia to have more housing stock and foreign investment does help in that regard. But not when it comes to existing real estate. As for the breakdowns, the percentage of - I can give you a breakdown. The percentage of properties owned, established properties owned by temporary residents is 88,000. 88,000 in Australia. That’s temporary residents. So a lot of those are complying with the law, but they have to sell when they leave the country. We have a deep suspicion that a number of people have left the country but haven't actually complied with the requirement to sell the properties. That’s why the data matching for the first time with the Department of Immigration is going to be so important. 26 per cent of that 88,000 are in New South Wales, 25 per cent in Victoria, 22 per cent in Western Australia, 19 per cent in Queensland, 1.5 per cent in the ACT, 4 per cent in South Australia, 1.1 per cent in Tasmania, and 0.2 of 1 per cent in the Northern Territory.

QUESTION:

This policy doesn't have a material impact on affordability, because you’re saying build, build, build and that seems to be the message you want to make on affordability. Is it worth it if it damages our reputation as a foreign investor nation?

TREASURER:

This does us no damage. No damage whatsoever as a destination for foreign investment. None whatsoever, because it’s about the integrity of the current laws. This is about the integrity of the current laws. About enforcing laws that are in place. The previous government didn't enforce them, we are enforcing the laws. We are applying penalties, as you would expect, in the case of people that breach the laws. So, I think this is a perfectly reasonable approach.

JOURNALIST:

Are you likely to get anymore forced divestments before December 1, while the moratorium is still in place?

TREASURER:

Yes.

JOURNALIST:

Are you expecting more in Sydney in particular?

TREASURER:

Yes.

QUESTION:

Soon? Any more details?

TREASURER:

Obviously what happens is the Australian Taxation Office undertakes investigations. FIRB is dealing with some legacy investigations of some substantial properties. Then the recommendations go through FIRB and then come to me and I form a view and if necessary we will force a divestment - issue a divestment order on properties - and I understand there may be a number of cases coming up.

JOURNALIST:

You mentioned a significant property in regards to one that FIRB was already looking at before the crossover, you know the one month, from the May 2 announcement, is that regards Altona?

TREASURER:

I cannot say.

JOURNALIST:

Treasurer do you accept that housing in Sydney is unaffordable and the only way we’re going to make it affordable is if real house prices in real terms actually fall over the near term?

TREASURER:

No. Look, if housing were unaffordable in Sydney, no one would be buying it. People are purchasing housing in Sydney, it’s expensive. As a multiple of average weekly earnings it is expensive, it’s an expensive city to live in. It’s my home city, it’s an expensive city. But, having said that, you know a lot of people would much rather have their homes go up in value than fall in value. Why? Because when you take out a mortgage, the mortgage is against the assessed value of that particular point in time, whatever’s leftover is your equity in the property. If your equity builds in the property not only is that to your financial benefit, but it also gives you the opportunity to borrow against that if you choose to do so for a small business. A lot of small businesspeople are borrowing against the equity in their homes in order to start up their business or build their business. Now, to have increasing equity in a home is a good thing, that’s a very good thing. Interest rates are at record lows. So if property is proving unaffordable for people with interest rates at record lows, then they should think carefully about how much they really can borrow, because you should always plan on in this situation interest rates potentially going up over the long term. So, you’ve got to be careful, it is a big financial risk to buy your own home. We want to make it easier. There are a suite of initiatives we have in place in regard to that, but most obviously, the best way to address inflated house prices in Sydney is to build more properties, build more properties.

JOURNALIST:

You say that housing is affordable, but what about for first home buyers who can’t get on the property ladder, those people that don’t have access to equity in other properties?

TREASURER:

Well there are a range of incentives that have been put in place by state governments and others in relation to first home buyers. The starting point for a first home buyer is to get a good job that pays good money. If you’ve got a good job and it pays good money and you have security in relation to that job, then you can go to the bank and you can borrow money and that’s readily affordable. More affordable than ever to borrow money for a first home now than it has ever been. But, the response for first home buyers is to build more properties. I know, it’s a difficult concept for some to get their heads around, supply and demand, but it’s not that complicated. If you increase supply to meet the demand, then obviously you won’t get the growth in property prices that you may have thought if you have less supply.

JOURNALIST:

You mention that there were some instances of tax fraud connected to some homes which had been purchased illegally, can you tell us more about that?

TREASURER:

Where there are – the Australian Taxation Office has found a rich vein of opportunity in relation to the unlawful purchase of real estate combined with potential taxation fraud. Quite obviously, for some people they think tax is a voluntary compliance, but for I’m sure everyone in this room and myself, it’s not. Therefore, the Australian Taxation Office because of its extensive investigative powers, together with its resources, is able to find that there is an obvious link between people unlawfully purchasing real estate and not paying their fair share of tax.

JOURNALIST:

What do you say to calls from The Greens to abolish negative gearing?

TREASURER:

Look, I’m surprised it came from The Greens because it was around half a million people on the 32.5 cents in the dollar tax rate who have properties that are negatively geared. So, there are a lot of middle income Australians that have negatively geared properties and bear in mind if you abolish negative gearing, rents will increase. Rents will increase. Because the losses on a property are offset against the income of an individual, that’s what negative gearing is. So, if you abolish negative gearing you are going to see an increase in rents. Now, that won’t apply across all of Australia, it depends on the property markets, but certainly in Sydney and Melbourne, Brisbane, and potentially Perth, you would see property rents increase dramatically and most obviously for those people who can’t afford an increase in rent.

Well, it is a prudential issue about the - and the macroprudential initiatives undertaken by APRA are, as an independent organisation, in their purview. Having said that, I think APRA wants to make sure that no lending institution in Australia is engaging in anything that might be described as an undue weighting in a particular field of credit. Now, there are many factors at play in that regard. But, given that interest rates are at record lows, at record lows, you want to make sure that you have a strong, well-resourced prudential regulator that is closely monitoring the performance of the banks. It’s a good test for the banks, it’s a good test for the banks. We expect the banks to dot every i and cross every t when it comes to their compliance with the reporting requirements of APRA. Dot every i, cross every t. It would be unfortunate, and in many ways very concerning, should any lending institution not be properly reporting their details of their potential credit risk, or the details of their lending programs properly.

JOURNALIST:

Just one final question sorry Treasurer. On 7.30 last night there were serious allegations raised against the Government in Nauru. Do you have any comment?